Thursday, 13 July 2017

As a number of posts recently in Financial Regulation Matters have been focused upon the credit
rating industry, it would be useful to catch up on some of the other stories
that we have looked at before to see how they have been developing. There have
been a number of key developments – or alternatively lack of development in the
case of Lloyds – regarding a number of organisations that have been the focus
of posts in this blog on quite a number of occasions. So, in this post, we will
take a look at the story of Lloyds not meeting its own deadline for
compensating victims of fraud, the massive fine given to RBS in the U.S., the
selection of Nicky Morgan as Chairwoman of the influential Treasury Select
Committee, and finally a small mention of the leading credit rating agencies’
withdrawal from the Russian marketplace tomorrow.

Lloyds Predictably Fails to Meet Its Own Deadline

Here in Financial Regulation
Matters we have reviewed the story of HBOS Executives running small firms
into the ground from the point at which six
of the leading conspirators were jailed, to Noel Edmonds (a British T.V.
Personality) leading the public
fight for adequate and timely compensation from Lloyds Bank. However, since
the last update which was concerned with Lawyers labelling the compensation
scheme a ‘sham’,
mostly with regards to its lack of adequate funding and perceived lack of
independence, there have been two particular developments which place the whole
story in context. Firstly, just as Noel Edmonds and a number of other victims
had predicted, Lloyds missed
its own target of settling compensation claims by the end of June 2017; in
fact, to date, ‘of the 64
[victims’ who have joined [the compensation scheme], it’s understood that fewer
than 10 have received offers and only one settlement has been reached’.
Furthermore, it was then revealed that the bank will be paying the victims £35,000
each to cover their costs associated with the delay, although the criticisms of the bank’s
handling of the affair continues to grow by the day. However, whilst the
criticisms have been predominantly on the basis of the firm’s impersonal
handling of the scheme with what are, lest the bank forgets, victims, anger has been growing on the
back of more troubling news. The Thames Valley Police Commissioner, Anthony
Stansfeld, was unassuming in his affirmation that the bank had refused to
accept the existence of the fraud for a number of years despite receiving ‘overwhelming
evidence’ – the Commissioner likened the Bank’s stance to a ‘cover
up’, which is extremely damning, whilst also making the point that has been
raised here and in many other outlets that £100 million cannot
be enough to compensate the victims. However, the evidence continues to
mount against the claims by Lloyds that they were not aware of the fraud, with
reports linking the Bank’s knowledge back to
2009 and a report, commissioned by Lloyds to be seen only by the Financial
Conduct Authority, which intends to detail the internal knowledge of the fraud –
which one commentator has correctly suggested should be made
public in light of the ever-growing disaster that Lloyds is facing.

Ultimately, the bank is doing what almost everyone expected
it to do – employ the old tactics of delays and reports and propaganda, with
the hope being that money can be saved by complainants taking an early and
reduced settlement etc., which is a truly despicable approach. There is very
little basis upon which Lloyds can drag its feet; it knew of the fraud and its
victims, and it is quick to champion its return to the private sector, which
means it has the resources to compensate its victims. Furthermore, Lloyds is becoming
entangled in the affair even more because of the claims, which appear to
substantiated, that the Bank was aware of the fraud but dismissed it – allowing
Scourfield to continue in his post for longer than he should have been. The
longer this continues, the worse it will get for Lloyds’ reputation as it
rebuilds from the embers of the Financial Crisis.

RBS Takes the First of Two Massive Penalties

RBS, mainly because of the terrible position that it
maintains since the Financial Crisis, has been the subject of a number of posts
here in Financial Regulation Matters,
ranging from its woeful
financial reports, to its narrow avoidance of a court
appearance regarding a cash-call in 2008. Yet, in the most recent post
regarding RBS, which looked at the potential for the recent
upgrade of RBS by Moody’s as being representative of the belief that
impending fines would be as expected, news broke yesterday that challenged that
viewpoint. We discussed how although the Bank had put aside £6 billion for the
fines it knew were coming from two U.S. Governmental departments, £6 billion
would not be enough, with some investors stating that if the Department of
Justice (DoJ) fine alone stopped at $10 billion they
would be happy. The recent news that the Federal Housing Finance Agency has
fined RBS £4.2
billion ($5.5 billion) therefore confirms that the post was right – there is
simply no way the remaining £1.8 billion that would be left over from the
original £6 billion pot is going to satisfy the DoJ when they come calling. It
is likely that, all in all, RBS will have to pay somewhere close to $15 billion
in combination, which paints Moody’s recent upgrade in a particularly poor
light.

Ultimately, the fine is absolutely deserved and the
impending fine by the DoJ will be absolutely deserved also. However, the
British taxpayer is paying a heavy price for the globalised ambitions of a Bank
ran into the ground and, in that sense, it appears that the continued failings of the bank may
prompt a reassessment of what to do with the bank. The taxpayer has been
lumbered with a firm that is getting worse, not better. Therefore, rather than
just continuing to see the bank perform poorly, there may be scope to look at
the possibility of breaking the bank up and moving its parts around the system
because, as we stand, things are only getting worse for RBS at a time when its
competitors are recovering, albeit tentatively.

In April we discussed, here
in Financial Regulation Matters, the
departure of Andrew Tyrie from the Treasury Select Committee. Rather than cast
aspersions on Tyrie’s political connections to the Conservative Party, the post
focused upon his contribution to the Committee which has become an important
component of the regulatory framework, mostly in terms of holding people and
companies to account in a public setting. It was announced this week that Nicky
Morgan, formerly Secretary of State for Education, had won the race to lead the
committee, beating the rising star Jacob Rees-Mogg in the process. The race
between the two, such was their dominance in the process, has led to suggestions
that Rees-Mogg is being primed for something else – the
Conservative Party Leadership – which may sound fanciful but the recent
upsurge in manufactured popularity for the ‘Old
Etonian’ suggests otherwise. Nevertheless, Morgan takes the important role
apparently free from conflict (unlike
Rees-Mogg) and willing, apparently, to uphold the purpose of the Committee
and ‘question
Ministers on their decisions’. However, Morgan, for one reason or another,
is seemingly preoccupied with Brexit which may be a problem because the role,
and the Committee itself, should not be a political tool. Rather, it should
represent the opportunity for elected officials to publically deconstruct what
are often purposefully-complicated financial dealings and hold those who
partake in such endeavours to account. It is hoped, rather it is vital, that
Morgan does not lead the Committee down an overly-politicised road in which
private actors will escape censure for their actions – the Committee is a small
but important part of the British regulatory framework and as the country heads
towards Brexit, that framework will undoubtedly be required to protect the
public from the iniquities of the marketplace.

The Leading Credit Rating Agencies Prepare to Leave
Russia

Finally, just a small nod to a subject that has been covered
extensively by this author, in this
blog, online,
and in Journals.
After reviewing the newly-created rating agency – the Analytical Credit Rating
Agency (ACRA) – which is a Russian endeavour developed in response to both a
feeling of being hard-done-by and the new Russian laws determining the entry
criteria for credit rating agencies, the sentiment advanced was that the agency
was a good idea, but would ultimately struggle for authority due to its
perceptible connections with the Russian Government (an issue plaguing a lot of
new entrants to the worldwide marketplace). However, as of tomorrow, the ACRA will
be the primary rating agency in the jurisdiction as the Big Three prepare
to leave which, although seems great for the ACRA will actually be quite a
test for such a small and under-resourced agency. Russia, depending on the
first phase after the Big Three leave, will be faced with an important conundrum:
if the market struggles without the ‘national scale ratings’ developed by the
Big Three, then it will have to lessen its accreditation standards to draw the
big agencies back in; alternatively, if the experiment does work, then the ACRA
will need to be funded adequately, which will help ACRA grow but will not help
the calls regarding impartiality as the firm attempts to broaden its horizons
outside of Russia. The next three to six months will make for an interesting
time period in Russia’s economic development.

No comments:

Post a Comment

Contributions are welcome to this blog. If you would like to contribute regarding any area of financial regulation, then please feel free to email me and submit your blog entry. The content should be concerned with financial regulation, and why it matters, but this is broadly defined. The blog is open to all who are professionally concerned with financial regulation, which may range from an Undergraduate Student interested in writing on the subject, to Professors and industry participants.